FORGET THE seven-year
limit of the new RRSP
carry-forward rule. Ottawa
has already changed the
limit.

That means many people wil!
be able to take as long as they
want to make up any RRSP con-
tributions they miss.

The new rule, part of the recent
pension and registered retirement
savings plan reform, takes effect
for this year (for the 1991 tax
year).

“Originally, you would have
had to keep track each year when
you didn’t use your contribution
room — that is, when you didn’t
put into your RRSP the amount
you could have,’’ said Don Smith
of North Vancouver, senior vice-
president of The Alexander Con-
sulting Group and a consultant to
the federal government on the
pension and RRSP reform.

“After seven years, if you
didn’t make the catchup contribu-
tion for year one, you lost it, and
so on.””

But now you may be able to
carry forward unused RRSP con-
tribution room for more than
seven years, depending on your
RRSP contributions and whether
you belong to a pension plan.

The seven-year limit comes into
effect only if, during the seven
years, you make no RRSP con-
tributions, don’t belong to a pen-
sion plan and have relatively high
earned income.

“Each year, Revenue Canada
will accumulate your unused
RRSP room — that is, the con-
tributions you could have made
that year but didn’t,”’ said Smith.

‘Starting in 1998, Revenue
Canada will calculate 18 per cent
of your earnings over the past
seven years and the maximum
RRSP contribution limits for
those same years.

**As long as your unused RRSP
contribution room is less than
those maximums, you may carry
forward that amount indefinitely,
and make catchup contributions
any time in the future.”’

Smith said young people, for
example, could make no RRSP
contributions and, instead, direct
their savings toward buying a
home or paying off a mortgage.

People in middle age could then
Start making regular RRSP con-
tributions, using excess savings to
pay children’s education costs or
buy a summer place, for example.

Once these expenses ended, then
people could make their catchup
RRSP contributions. ‘At that
point in their lives they would
probably be in the top tax bracket

Michael
Grenby

DOLLARS AND SENSE

and so save the most tax,’’ Smith
said.

However, he warned, ‘‘you
must also look at the tax-sheltered
investment growth you lose if you
build up your RRSP later rather
than eariier.”’

The book Pensions and Retire-
ment Income Planning 90-91, by
Peat Marwick Stevenson &
Kellogg (CCH Canadian, $26.95),
points out you can also use the
carry-forward rule in other ways.

“The taxpayer could, for ex-
ample, make an RRSP contribu-
tion in 1991 (for the 1991 tax
year) but not claim the deduction
on the 199! tax return. So the
RRSP contribution room carried
forward into 1992 would remain
intact.

“This feature is beneficial to
individuals who have a low tax-
able income in a particular year
but have encugh cash to make an
RRSP contribution.”

In other words, if you are in the
lowest tax bracket now and have
the money, contribute as soon as
possible — but delay claiming the
deduction if you expect to be in a
higher tax bracket in the future
when the deduction will save you
more tax.

Hewever, first check if claiming
the deduction now would lower
your net income and give you
higher federal tax credits.

Also, warns the book, there are
other potential disadvantages to
this strategy:

(1) There is no guarantee you
will be in a higher tax bracket in
future. What happens if you
become disabled or unemployed,
for example?

(2) You might be hit by the
Alternative Minimum Tax. You
must add back all RRSP deduc-
tions for the AMT calculation,
and if you have to pay AMT, that
could negate other {ax savings.

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BUSINESS
ttawa loosens up R

(3) If a past service pension ad-
justment arises before you claim
the RRSP deduction, that could
use up all the RRSP contribution
room so you wouldn't be able to
claim the un-deducted RRSP con-
tribution made earlier.

Here’s another tip: If you have

less than $7,000 of private pension
income a year and plan to use the
special $6,000-a-year spcusal
RRSP rollover rule in effect
through 1994, consider teaving oui
$1,000 a vear once you turn 60 so
you can claim the $1,000 pension
income credit.

SP rule

eee
Ed. note: Ticket prices
previously quoted for Mike Gren-
by’s Money Magic Show on Feb.
9 were partially incorrect. A single
ticket is $5.50, which includes the
GST,

** Contrary to popular opinion, not everybody
needs an RRSP, right now, right today.

Question is, are you one of
these people? ”

Keith Sanders,
head of our
Retirement j
Planning
group.

Find out by attending
one of our seminars.

North Vancouver: Tuesday, January 22
7pm - 9pm, Mt. Seymour Golf & Country

Club
a

Burnaby: Thursday, January 24
7pm - 9pm, Sheraton Villa {nn

North Vancouver: Tuesday, January 29
7pm - 9pm, Lonsdale Quay Hotel

Vancouver: Thursday, January 31
7pm - 9pm, Coast Plaza (Stanley Park)

8
Whistler: Tuesday, February 5
7pm - 9pm, Whistler Conference Centre

a
Members FREE! Non-members $5.
Register early, 980-6728. Seating is limited